Correlation Between Direxion Daily and Microsectors Gold

Can any of the company-specific risk be diversified away by investing in both Direxion Daily and Microsectors Gold at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Direxion Daily and Microsectors Gold into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Direxion Daily SP and Microsectors Gold 3x, you can compare the effects of market volatilities on Direxion Daily and Microsectors Gold and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Direxion Daily with a short position of Microsectors Gold. Check out your portfolio center. Please also check ongoing floating volatility patterns of Direxion Daily and Microsectors Gold.

Diversification Opportunities for Direxion Daily and Microsectors Gold

-0.48

Correlation Coefficient

Direxion Daily  Microsectors Gold

Very good diversification

The 3 months correlation between Direxion and Microsectors is -0.48. Overlapping area represents the amount of risk that can be diversified away by holding Direxion Daily SP and Microsectors Gold 3x in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Microsectors Gold and Direxion Daily is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Direxion Daily SP are associated (or correlated) with Microsectors Gold. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Microsectors Gold has no effect on the direction of Direxion Daily i.e., Direxion Daily and Microsectors Gold go up and down completely randomly.

Pair Corralation between Direxion Daily and Microsectors Gold

Given the investment horizon of 90 days Direxion Daily SP is expected to under-perform the Microsectors Gold. But the etf apears to be less risky and, when comparing its historical volatility, Direxion Daily SP is 1.41 times less risky than Microsectors Gold. The etf trades about -0.12 of its potential returns per unit of risk. The Microsectors Gold 3x is currently generating about 0.03 of returns per unit of risk over similar time horizon. If you would invest  4,277  in Microsectors Gold 3x on October 6, 2024 and sell it today you would earn a total of  38.00  from holding Microsectors Gold 3x or generate 0.89% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Very Weak
Accuracy	100.0%
Values	Daily Returns

Direxion Daily SP  vs.  Microsectors Gold 3x

Direxion Daily SP

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Direxion Daily SP are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively uncertain basic indicators, Direxion Daily may actually be approaching a critical reversion point that can send shares even higher in February 2025.

Microsectors Gold

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Microsectors Gold 3x has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong basic indicators, Microsectors Gold is not utilizing all of its potentials. The latest stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with Direxion Daily and Microsectors Gold

The main advantage of trading using opposite Direxion Daily and Microsectors Gold positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Direxion Daily position performs unexpectedly, Microsectors Gold can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Microsectors Gold will offset losses from the drop in Microsectors Gold's long position.

The idea behind Direxion Daily SP and Microsectors Gold 3x pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Equity Forecasting module to use basic forecasting models to generate price predictions and determine price momentum.